Can Lax Corporate Law Increase Shareholder Value? Evidence from Nevada

Ofer Eldar

Journal of Law and Economics, 2018, vol. 61, issue 4, 555 - 605

Abstract: Recent scholarship argues that Nevada's lax corporate law, which exempts managers from fiduciary duties and discourages takeovers, may harm shareholders' wealth. I present evidence that Nevada corporate law does not harm shareholder value for firms that self-select into Nevada, particularly small firms with low levels of institutional shareholding and high levels of insider ownership, and it may in fact enhance the value of these firms. A possible explanation is that Nevada's promanagerial laws reduce the likelihood of takeovers and litigation, thereby benefiting a segment of small firms for which the costs of corporate governance may outweigh the benefits.

Date: 2018
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